Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

TripAdvisor Seeks a 2015 Comeback, but Will It Deliver?

The travel-review stock has been in the doldrums lately. Is a turnaround possible?

At some point, most companies face a tough decision: Should they take a short-term hit by spending more money in search of better growth opportunities, or should they remain content with a safer but more limited path to success? That's the dilemma that travel-review website TripAdvisor (NASDAQ:TRIP) has faced recently, with the company having decided that it makes sense to invest in building up potential new revenue streams and embracing the shift toward mobile devices, even at the cost of a temporary standstill in earnings growth. As a result, with investors watching closely to see how the company will do in its fourth-quarter financial report on Wednesday afternoon, TripAdvisor needs to demonstrate that its efforts will eventually pay off in higher stock prices.

As a spinoff from travel portal Expedia (NASDAQ:EXPE), TripAdvisor initially had a primary focus of providing travel-related information. Yet now, TripAdvisor has worked hard to go beyond its initial area of expertise, instead incorporating a far wider range of services to cater to all travel needs. The question TripAdvisor faces is whether it can thrive as it evolves and eventually restart its profit growth at a faster pace. Let's take an early look at what's been happening with TripAdvisor over the past quarter and what we're likely to see in its report.

Stats on TripAdvisor

Analyst EPS Estimate

$0.37

Change From Year-Ago EPS

76%

Revenue Estimate

$285.11 million

Change From Year-Ago Revenue

34%

Earnings Beats in Past 4 Quarters

0

Source: Yahoo! Finance.

Are TripAdvisor earnings heading higher? Investors have reined in their views on TripAdvisor earnings in recent months, cutting their fourth-quarter projections by a penny per share and reducing their full-year 2015 estimates by about 3%. The stock has done much more poorly, plunging another 18% since early November.

Source: TripAdvisor.

Just about all of those losses came after TripAdvisor's third-quarter report showed the dangers of falling short on the earnings front. Although TripAdvisor's revenue soared 39%, with particularly strong gains in click-based advertising revenue, earnings per share fell on a GAAP basis and only managed a 9% rise after adjusting for special items. Free cash flow also dropped dramatically, leaving TripAdvisor with only about 35% of the free cash flow available that it generated during the third quarter in 2013.

Yet those results haven't slowed down TripAdvisor's appetite to expand. As part of its strategic vision, TripAdvisor sees itself making waves in many areas in which online travel companies haven't paid as much attention. For instance, hotel-focused businesses are a dime a dozen in travel, but by acquiring companies that focus on other specialties, such as tours and attractions as well as international restaurant reservations, TripAdvisor wants to make itself a one-stop shop for every piece of the traveler's entertainment experience. Just earlier this month, TripAdvisor picked up ZeTrip, a company that helps people keep track of where they've visited and photographs they've taken on their trips.

Source: TripAdvisor.

Still, one concern that TripAdvisor faces is whether the entire travel industry is due for a correction. Last week, Expedia fell well short of meeting the expectations of its shareholders, as adjusted net income fell by 10% and operating income plunged by nearly a third. Moreover, with 2015 guidance on the conservative side, Expedia's results led some of its rival, including Priceline Group (NASDAQ:BKNG), to fall in sympathy.

In the TripAdvisor earnings report, look closely to see if the company shows any signs that it anticipates getting an acquisition offer of its own. Lately, some investors have speculated that TripAdvisor could find its parent company sold to Priceline, Expedia, or another competitor. For now, that speculation hasn't led to a firm offer, but with Expedia having bought Travelocity recently, TripAdvisor's bargain price could be too attractive for rivals to pass up -- as long as the business continues to grow.

Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
Follow @DanCaplinger